Edited version of private ruling

Authorisation Number: 1011606259686

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Ruling

Subject:

Deductible amount of the Undeducted Purchase Price (UPP) of your foreign pensions

Issue 1

Are you entitled to an annual deductible amount in respect of the UPP of your foreign pension?

Yes, your annual deductible amount for the 2009-10 income year has been calculated in accordance with Taxation Ruling IT 2554

This ruling applies for the following period

Year ended 30.June 2010

Issue 2

Are you entitled to an annual deductible amount in respect of the UPP of your reverted foreign pension?

Yes, your annual deductible amount for the 2009-10 income year has been calculated in accordance with Taxation Ruling IT 2554

This ruling applies for the following period

Year ended 30.June 2010

Relevant facts

You are a resident of Australia for income tax purposes.

The international tax agreement between Australia and the country in which the retirement funds are established and managed) provides that the pensions are taxable in Australia.

You receive two pensions from a retirement fund established and managed outside Australia.

Your assessable income includes your pension income.

All of the pensions are payable to you.

Taxation Ruling IT 2554 provides for an alternative calculation of the deductible amount under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936).

You have provided documentary evidence confirming your contributions for each of your pensions for the 2009 and 2010 calendar years.

Relevant legislative and regulatory provisions

Income Tax Assessment Act 1936 Section 27H

Income Tax Assessment Act 1936 Subsection 27H(2)

Income Tax Assessment Act 1936 Subsection 27H(3)

Income Tax Assessment Act 1936 Subsection 27H(4)

Income Tax Regulations 1936 Regulation 9

Income Tax Assessment Regulations 1997 Regulation 960-50

Reasons for decision

Explanation

Please note that all references to 'pension' cover both pensions and annuities.

Section 27H of the ITAA 1936 operates to include in assessable income the amount of any pension derived by a taxpayer during a year of income reduced by the deductible amount.

The deductible amount is calculated based on the UPP.

The UPP is the amount you contributed towards the purchase price of your pension for which you did not claim, and were not eligible to claim, a tax deduction in Australia.

Contributions made by an employer or by another person under an agreement to which the employer was a party, cannot form part of the UPP of the pension.

Each year a portion of the UPP can be used to reduce the pension income in your tax return. This is called the deductible amount and is deemed to be a return of part of your contribution towards the purchase of the pension.

Taxation Ruling IT 2554 considers the taxation treatment of certain foreign pensions received by Australian residents.

The ruling states that for a part of a foreign pension to be exempt from Australian tax, the pension must be paid by a foreign superannuation or retirement fund and the pension must be purchased by contributions to the fund and identified as such by the fund.

Your foreign pension meets these requirements.

Therefore, you are entitled to a deductible amount of the UPP of your pension for the 2009-10 income year.

IT 2554 states that in recognition of the difficulties for pensioners in obtaining information relating to their contributions to the INPS, it has been decided to accept that the portion of the pension identified by the INPS as being derived from the contributions made by the pensioner (reduced by 10% to reflect the interest element in that component of the pension) is the annual exclusion amount.

In working out the contributive amount for a particular year, it must be noted that the figures supplied by INPS are based on calendar years and therefore two years' statements are required to calculate the amount for each Australian financial year.

Therefore the formula for calculating the deductible amount of your UPP for any year is:

(amount of contributive portion for 2009 and 2010 calendar years) ÷2 x 90%

The deductible amount for each of you pensions for the 2009-10 year of income has been calculated in accordance with Taxation Ruling IT 2554